Greece on verge of debt forgiveness deal with creditors

The Greek government last night appeared to be on the verge of an agreement with some of its major creditors to restructure its bulging €355bn debt pile – although doubts remain about how many of the country's bondholders will sign up to the deal.

The strong possibility remains that a number of small hedge funds that have bought Greek bonds at distressed prices in recent months will refuse to give their assent, forcing the government of Prime Minister Lucas Papademos to retrospectively rewrite the terms of the debt contracts. It is feared that such a move could create a potentially dangerous new source of financial instability for the eurozone.

Talks in Athens between the Institute of International Finance (IIF), which represents the majority of Greece's bondholders, made progress yesterday, with reports suggesting that an agreement would be concluded to swap €200bn of existing Greek bonds for investments with a long term value of up to 70 per cent less.

Sources close to the discussions suggested that the new bonds would be repayable after 30 years and would pay out annual interest of 4 per cent. The last round of talks broke between the IIF and the Greek government about the size of the interest rate, technically known as the "coupon", on the new bonds. Greece is due to redeem €14.5bn in bonds that mature on 20 March. The country's official backers in the European Union and the International Monetary Fund have said they will not transfer the funds that Athens needs to meet that obligation unless the country and its creditors agree to restructuring deal.

Without those funds, Greece would be forced into a disorderly default, something that would create chaos throughout the European financial system. But even if a deal is done and those official bailout funds are delivered, hedge funds that are believed to be holding out for a large profit on the Greek bonds that they bought cheaply might refuse to sign up to the deal, forcing Athens to impose losses on them unilaterally.

Such a move would shatter any pretence that the restructuring deal is "voluntary" and would trigger Credit Default Swaps held by hedge funds and other investors in Greek debt. The financial firms that have written these financial insurance contracts would then register losses, creating another source of instability for the European banking system.

Two New York hedge funds – Och-Ziff and York Capital – confirmed this week that they have acquired Greek bonds, although they insisted that their holdings were small. They also confirmed that they have taken no part in the restructuring talks with the Greek government.

Start your day with The Independent, sign up for daily news emails
News
news
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
Life and Style
fashion
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
tv
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Sport
sport
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Marketing Manager/Marketing Controller (Financial Services)

£70000 - £75000 per annum + benefits: Ashdown Group: Marketing Manager/Marketi...

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all